HSBC leads European shares lower in jittery trade

Fri May 24, 2013 7:30am EDT

* FTSEurofirst 300 down 0.5 pct, FTSE 100 down 0.7 pct

* HSBC drags indexes on fears about U.S. case settlement

* Selling pressure piles up as indexes test support

By Francesco Canepa

LONDON, May 24 (Reuters) - European shares edged lower on Friday, dragged down by heavyweight bank HSBC and some technical selling as key indexes tested support levels, igniting concerns about further falls.

HSBC shed 1.7 percent, with traders citing reports that talks with U.S. authorities to settle a $1.9 billion money laundering case had stalled, fuelling speculation the bank may lose its U.S. licence.

It was the biggest drag on the pan-European FTSEurofirst 300 index, which fell 0.5 percent to 1,224.44 points, and on Britain's FTSE, down 0.7 percent to 6,650 points at 1056 GMT.

Volume was thin at 30 percent of the FTSEurofirst 300's full-day average for the past 90 days, with some traders already away ahead of a long weekend in Britain and the United States.

Selling of European shares gathered pace as the UK index and Germany's Dax approached Thursday's intra-day lows, triggering automated sell orders and further straining traders' nerves after hefty losses the previous day.

A close below Thursday's intra-day low at 6,660 on the FTSE would open up downside towards March's high at 6,532.

"It if stays above this level when the U.S. (market) opens, I can't see it being too busy today," said Adam Morrow, an execution trader at City Index. "If we break below, it could potentially gain more momentum to the downside."

Sentiment was jittery as investors fretted about a possible tapering of the U.S. Federal Reserve's monetary stimulus programme, which has been instrumental in driving a 10 percent rally in European shares over the past month.

Sectors that track economic growth and risk assets, such as auto makers, banks and basic resources led fallers, down between 0.9 percent and 1.8 percent.

Yet some longer-term investors remained sanguine, noting the Fed was unlikely to cut its quantitative easing (QE) programme soon in light of still mixed economic data, as highlighted by St. Louis Fed President James Bullard on Friday.

"We are not rushing out of equities on a knee jerk reaction," said Jonathan Fry, who helps manage 500 million pounds at Jonathan Fry Plc and prefers stocks to bonds and cash.

"If QE were to cease some of this (rally) could unwind, but there doesn't appear to be any sign this is going to be imminent."

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